media - overall · the proposal will subsequently be presented to the cabinet for its approval. in...

Sector Note | Alpha series Media │ Malaysia │ September 28, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Media - Overall

Classifieds: Media stocks for sale

■ The Malaysian Insight reported that the Prime Minister had suggested a law to limit political parties’ stakes in media companies to only 10%.

■ The potential sale may be positive for Utusan, Media Prima, and Star. Utusan has the highest likelihood of facing a GO, if UMNO has to cut its stake.

■ The new rule may provide a trading opportunity in the sector – but we stay Neutral on the media sector pending concrete details on the proposed law.

A possible capping of political parties’ ownership to only 10% stake The Malaysian Insight on 6 Sep reported, citing sources, that Prime Minister Tun Dr.

Mahathir Mohamad was mulling a ruling to cap political parties’ ownership in mainstream

media companies to 10%. This report takes a look at: i) backgrounds of listed media

companies with political-party shareholders; ii) the possible suitors for the media shares if

it becomes the law for political parties to limit their stakes to 10%; iii) the potential prices

and valuations for these media shares; and iv) the industry landscape and outlook.

Spotlight on Star, Media Prima, and Utusan There are only three mainstream media groups owned by political parties. The Malaysian

Chinese Association (MCA) has a 43.1% stake in Star Media Group. The United Malays

Organisation (UMNO) has a 49.8% stake in Utusan Melayu (Malaysia), and a 7.96%

stake in Media Prima. Both these parties are part of the Barisan Nasional (BN) coalition,

which was deposed for the first time at the 14th General Election (GE14) in May 2018.

Media companies’ share prices dropped by 25-48% since GE14 Media companies’ share prices have fallen by 25-48% since the May 18 elections and 26-

58% YTD. The declines were symptoms of degenerating profitability in the wake of the

digital media influx. Utusan, which fell the hardest, slipped into the financially distressed

Practice Note 17 (PN17) status in Aug 2018. Advertisers meanwhile took a pause in

spending after GE14, accelerating the drops in media companies’ earnings.

A possible re-rating catalyst for beaten-up media stocks? Star, Utusan, and Media Prima are trading at 32-82% discounts to their BVs. We believe

a 1x BV is the fairest valuation for profitable companies, and it has been used previously

for government-decreed takeover exercises for various sectors, namely banking and

water services. Should there be a takeover offer, we see Utusan as having the highest

likelihood of facing a general offer (GO) due to the sheer size of UMNO’s stake.

Maintain Neutral rating on media sector We believe that more independent journalism is positive for the media companies in the

long run, as they can potentially attract more advertisers. But the earnings volatility

surrounding the sector may cap the short-term upside. An upside risk for the sector is a

faster prognosis of profitability for the companies’ non-traditional media businesses.

Figure 1: Media companies’ shares held by political parties

SOURCES: CIMB RESEARCH, COMPANY REPORTS

Malaysia

Neutral (no change)

Highlighted Companies

Astro Malaysia HOLD, TP RM1.75, RM1.52 close

We see stronger earnings delivery in 2HFY1/19 due to lower content cost from fewer major sporting events, but we see earnings risks from unfavourable forex and rising competition in the digital space. Astro still offers an attractive CY19F yield of 7%.

Media Chinese Int'l REDUCE, TP RM0.27, RM0.27 close

MCIL’s dominant position in the Chinese-language print market in Malaysia is no longer immune to the digital onslaught. In 1QFY3/19, MCIL’s Malaysian printing & publishing operations reported a 2.8% yoy revenue decline in spite of revising its newspaper cover prices upwards by 20 sen/copy.

Star Media Group Bhd HOLD, TP RM1.04, RM0.81 close

Star plans to unlock the value of its land bank of 1.2m sq ft (2.1m sq ft if we include land with buildings). It hinted that it may venture into property development and/or investment, rather than relying on one-off gains.

Summary Valuation Metrics

Insert

Analyst(s)

Mohd Shanaz NOOR AZAM

T (60) 3 2261 9078

E [email protected]

Kamarul ANWAR T (60) 3 2261 9092 E [email protected]

P/E (x) Dec-18F Dec-19F Dec-20F

Astro Malaysia 14.13 13.00 12.47

Media Chinese Int'l 22.86 10.98 10.75

Star Media Group Bhd 19.10 19.70 19.94

P/BV (x) Dec-18F Dec-19F Dec-20F

Astro Malaysia 12.09 11.13 11.05

Media Chinese Int'l 0.57 0.56 0.55

Star Media Group Bhd 0.69 0.70 0.70

Dividend Yield Dec-18F Dec-19F Dec-20F

Astro Malaysia 6.95% 6.98% 7.95%

Media Chinese Int'l 5.10% 4.55% 4.65%

Star Media Group Bhd 4.96% 3.72% 3.72%

49.8% 7.96% 43.1%

Market cap: RM17.7m Market cap: RM521.3m Market cap: RM594.5m

BV (31 Dec 2017): RM95.8m BV (31 Dec 2017): RM766.7m BV (31 Dec 2017): RM873.6m

Share price (27 Sep): 16 sen Share price (27 Sep): 47 sen Share price (27 Sep): 80.5 sen

BV/share: 87 sen BV/share: 69 sen BV/share: RM1.18

P/BV: 0.2x P/BV: 0.7x P/BV: 0.7x

Media Prima Bhd

Malaysian Chinese Association

(MCA)

Star Media Group BhdUtusan Melayu (Malaysia) Bhd

Altima Inc

United Malays National

Organisation (UMNO)

Media │ Malaysia

Media - Overall │ September 28, 2018

2

Classifieds: Media stocks for sale

A possible law to limit political parties’ stakes

The PM “suggests” setting the cap at 10%

A 6 Sep report by The Malaysian Insight quoted sources saying that Malaysia’s

Prime Minister Tun Dr. Mahathir Mohamad had suggested a law to limit the

stakes held by political parties in mainstream media corporations to 10% only.

The planned law would apply to political parties, and those linked to the parties –

be it private companies, organisations, or individuals. The report made no mention of any timeframe for the implementation.

Dr. Mahathir confirmed the report at a media conference a day later (7 Sep),

saying he welcomed any effort to prevent political parties or organisations from

“polluting” media companies with their personal agendas, according to the New

Straits Times. He also said any attempt towards ensuring media freedom in Malaysia was a step in the right direction.

Communications Ministry working on the mechanics

Communications and Multimedia Minister Gobind Singh Deo has been voicing

out the need to regulate political parties’ influence on the media as soon as he

was elected into office in May 2018. This vision has its roots in Pakatan

Harapan’s (PH) election manifesto, specifically “Promise 27: Abolish oppressive

laws”, which stated that it “will ensure that media has the freedom to check and

balance our administration”. To fulfil this promise, PH aims to revoke these laws:

i) Sedition Act 1948; ii) Printing Presses and Publications Act 1984 (PPPA); and iii) National Security Council Act 2016.

During an interview on BFM’s The Breakfast Grille 4 Sep episode, Gobind said

the Communications and Multimedia Ministry is developing the mechanism to

curtail political ownership in media companies. The proposal will subsequently

be presented to the Cabinet for its approval. In explaining the rationale for this

proposal, Gobind said, “If a particular news agency is owned by any political

party, then there is a tendency you see media reports being slanted towards their end.”

The media players and their political party shareholders

Three major media corporations with political shareholdings

The Barisan Nasional (BN) coalition, recently ousted from the federal

government for the first time at the 14th General Election (GE14) in May 2018,

had amassed ownership of Malaysia’s mainstream media outlets for decades,

with the assets reshuffled and consolidated into various entities over its 61-year

rule. Today, all of its major media assets are parked under three public-listed

companies. The United Malays National Organisation (UMNO), the most

influential component party in BN, owns Media Prima and Utusan Melayu. The Malaysian Chinese Association (MCA) meanwhile owns Star Media Group.

https://www.themalaysianinsight.com/s/93548

https://www.nst.com.my/news/nation/2018/09/409219/many-people-trying-control-media-says-dr-m

https://www.nst.com.my/news/nation/2018/09/409219/many-people-trying-control-media-says-dr-m

https://www.thestar.com.my/news/nation/2018/05/22/media-freedom-will-be-a-priority-says-gobind/

https://www.thestar.com.my/news/nation/2018/05/22/media-freedom-will-be-a-priority-says-gobind/

http://kempen.s3.amazonaws.com/manifesto/Manifesto_text/Manifesto_PH_EN.pdf

https://www.bfm.my/bg-gobind-singh-deo-unshackling-malaysias-journalists-and-internet-economy.html

Media │ Malaysia


3

Figure 2: Utusan Melayu’s major shareholders

SOURCES: CIMB RESEARCH, COMPANY REPORTS, BLOOMBERG

Figure 3: Media Prima’s major shareholders

SOURCES: CIMB RESEARCH, COMPANY REPORTS, BLOOMBERG, THE EDGE WEEKLY, COMPANIES COMMISSION OF MALAYSIA

Figure 4: Star Media’s major shareholders


Held in trust

49.8%

14.8%

Market cap: RM17.7m

BV (31 Dec 2017): RM95.8m

Share price (27 Sep): 16 sen

BV/share: 87 sen

P/BV: 0.2x

Tan Sri Syed Mokhtar Albukhary United Malays National

Organisation (UMNO)

Nilam Setar (M) Sdn Bhd

Utusan Melayu (Malaysia) Bhd

?

100%

Held in trust?

11.8%

12.7%

11.1%

7.96%

Market cap: RM521.3m

BV (31 Dec 2017): RM766.7m

Share price (27 Sep): 47 sen

BV/share: 69 sen

P/BV: 0.7x

Gabungan Kesturi

Employees Provident Fund

(EPF)

Media Prima Bhd

United Malays National

Organisation (UMNO)

Minister of Finance, Inc

(MoF Inc)

Amanah Raya BhdMorgan Stanley & Co

International Plc

Altima Inc

9.3% 43.1% 9.9%

Market cap: RM594.5m

BV (31 Dec 2017): RM873.6m

Share price (27 Sep): 80.5 sen

BV/share: RM1.18

P/BV: 0.7x

(EPF)

Employees Provident Fund Perbadanan Nasional Bhd

(PNB)

Star Media Group Bhd

Malaysian Chinese Association

(MCA)

Media │ Malaysia


4

Where do they position themselves in the adex value chain?

Although there are only three public-listed media corporations with political

parties as major shareholders, the influence wielded by these companies is still

enormous – even after considering traditional media’s declining popularity.

Media Prima controls virtually every medium, and is the sole private player in the

free-to-air (FTA) television space. Star is the leading English-language print publisher and news portal.

Altogether, the three companies took up 62.1% of the traditional advertising

expenditure (adex) market in 2017, according to Nielsen Malaysia. Their print

publications had a collective 63.4% share in 2017 circulation, based on Audited

Bureau of Circulations Malaysia (ABCM) data. Media Prima’s television stations had a 34.7% share of Malaysian TV audience as at end-Jun 2018.

Figure 5: NSTP, Utusan and Star's shares of 2017 print adex (%) Figure 6: Media Prima's share of 2017 FTA TV adex (%)

SOURCE: NIELSEN MALAYSIA SOURCE: NIELSEN MALAYSIA

Share prices hammered by protracted digital onslaught

Since GE13 in May 2013, shares of Star, Media Prima, and Utusan have shrunk

by 27-78% in value. Consumers’ structural shift from print to digital media began

to accelerate in the early 2010s, as high-speed Internet and smart devices were

introduced to the Malaysian market. Digital media consequently grew in relevance, and enervated traditional media players’ profitability.

Figure 7: Malaysian media companies' share prices from the last trading day before GE13 (3 May 2013)

SOURCES: CIMB RESEARCH, BLOOMBERG

NSTP, 29.5%

Star Media, 20.2%

Utusan, 5.6%

Others, 44.7%

Media Prima Television

Networks, 86.1%

Others, 13.9%

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Media Prima Star Media MCIL Astro Malaysia Utusan Melayu Berjaya Media

Media │ Malaysia


5

Figure 8: Malaysian media companies' share price performances since GE13 eve

(RM/share)


The share prices’ downward spiral continued from the eve of GE14 (8 May) to

21 Sep. The only exception to the case was Media Prima, which rebounded by

46.9%. Its share price bottomed out at 32 sen in Apr 2018, after announcing various kitchen-sinking exercises in FY17 that amounted to RM501.4m.

Figure 9: Malaysian media companies' share price performances since GE14 eve

(RM/share)


The stocks’ descent was reflective of their regressing profitability, with the worst

performing of them all, Utusan Melayu, recording core net losses every year

from CY13 to CY17. In that period, the media companies’ aggregate core net

profit fell in the range of 12-38% yoy – with CY15 being the only exception

staging a 9.9% yoy growth. But without Astro in the equation, the quanta of yoy

deterioration in the aggregate net profit were greater; CY17 was the worst, at 189% yoy.

Figure 10: Media companies' revenues CY13-17 (RM m) Figure 11: Media companies' core net profit CY13-17 (RM m)

SOURCES: CIMB RESEARCH, COMPANY REPORTS SOURCES: CIMB RESEARCH, COMPANY REPORTS

Malaysia’s print sub-sector may be the most vulnerable among all traditional

media. Newspaper adex’s CAGR dropped by 8.1% from 2012 to 2017, against

the aggregate market’s fall of 4.8%, according to Nielsen’s data. And due to the

nature of print business’s high operating leverage, the listed news publishers’ profit declines have been even more drastic than their toplines’.

Media Prima Star Media MCIL Astro Malaysia

Utusan

Melayu

Berjaya

Media

3 May 2013 1.72 1.45 0.83 2.36 0.64 0.47

27 Sep 2018 0.47 0.81 0.27 1.52 0.16 0.21

Gain/loss (%) -72.7% -42.5% -68.1% -26.6% -78.0% -59.6%

Media Prima Star Media MCIL Astro Malaysia

Utusan

Melayu

Berjaya

Media

8 May 2018 0.32 1.07 0.30 1.83 0.31 0.21

27 Sep 2018 0.47 0.81 0.27 1.52 0.16 0.21

Gain/loss (%) 46.9% -24.8% -11.7% -16.9% -48.4% 0.0%

-18%

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-12%

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-4%

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Media Prima Star Media MCIL

Astro Malaysia Utusan Melayu Berjaya Media

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Media Prima Star Media MCIL

Astro Malaysia Utusan Melayu Berjaya Media

Yoy (%) Yoy ex-Astro (%)

Media │ Malaysia


6

Figure 12: Malaysia's total adex fell by 4.8% CAGR from 2012-17 Figure 13: Newspaper's adex fell by 8.1% CAGR from 2012-17

SOURCE: NIELSEN MALAYSIA SOURCE: NIELSEN MALAYSIA

Average circulation fell in tandem, by a 2012-2017 CAGR of 10.8%. This

resulted in the average circulation falling by nearly half in the span of five years,

from 4.2m copies/day in 2012 to 2.4m/day in 2017. With free news websites

mushrooming since the late 1990s, Malaysian consumers have been

conditioned to read news free of charge. Media incumbents ironically have

embraced this free-reading phenomenon, and consequently cannibalised their own print businesses.

Furthermore, the changing political landscape boosted the popularity of blogs

and news portals that are perceived to have no affiliation with the then ruling

coalition BN. Malaysiakini, The Malaysian Insider, and Free Malaysia Today

became veritable alternatives to mainstream media. GE13 was the first one in

Malaysian history where BN had fewer popular votes than the opposition parties, at 47%, against Pakatan Rakyat’s 51%.

Media Prima is the only integrated media player

UMNO had taken control of what made up Media Prima’s current core news and

FTA TV media assets since the 1970s, through its erstwhile investment holding

company Fleet Group. However, the formation of an integrated Media Prima

came into being in 1993, when the government approved a management buyout

(MBO) of The New Straits Times Press (Malaysia) Bhd (NSTP) by Realmild Sdn Bhd.

Figure 14: Media Prima's 5-year financial summary


8.3

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Total adex

4.3

2.8

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RM bn

Total newspaper adex

Financial Summary Dec-13A Dec-14A Dec-15A Dec-16A Dec-17A

Revenue (RM m) 1,722.9 1,507.0 1,427.7 1,289.0 1,195.7

Operating EBITDA (RM m) 590.4 406.7 496.0 257.7 (299.2)

Net profit (RM m) 214.2 75.5 138.7 (59.2) (650.6)

EPS (RM) 0.20 0.07 0.13 (0.05) (0.59)

EPS growth (%) 1% -65% 83% -143% 999%

PER (x) 2.40 6.88 3.76 NA NA

DPS (RM) 0.06 0.06 0.10 0.09 0.04

Dividend Yield % 13% 13% 22% 20% 9%

EV/EBITDA (x) 1.00 1.46 1.19 2.30 (1.98)

Net gearing (x) -7% -7% -7% -5% 15%

P/BV (x) 0.31 0.33 0.32 0.36 0.68

ROE (%) 13% 5% 9% -4% -58%

Issued common shares (m) 1,100.5 1,109.1 1,109.2 1,109.2 1,109.2

Shareholders fund 1,656.4 1,592.6 1,620.7 1,461.6 766.7

BVPS (RM) 1.51 1.44 1.46 1.32 0.69

Media │ Malaysia


7

Brief history of Media Prima

According to Edward Terence Gomez’s book Minister of Finance Incorporated:

Ownership and Control of Corporate Malaysia, Realmild was owned by four

NSTP executives and journalists known to be Anwar’s allies: Tan Sri Abdul Kadir

Jasin, Datuk Khalid Ahmad, Mohd Noor Mutalib, and Ahmad Nazri Abdullah.

Shortly thereafter, Realmild also took over Sistem Televisyen Malaysia Sdn Bhd (TV3), Malaysia’s first FTA private TV operator.

Realmild parked TV3 and NSTP under Malaysian Resources Corp Bhd (MRC

MK, Reduce), while still having the two media companies as separate listed

entities. In the early 2000s, MRCB underwent a restructuring exercise after

being stricken with a huge debt load. TV3 and NSTP were divorced from the group, with a new holding company taking over their assets.

The holding company, renamed Media Prima, now owns: i) seven FTA TV

stations (TV3, ntv7, TV8, and TV9 plus extra channels for digital terrestrial TV

test transmission TV3 HD, Drama Sangat, and CJ Wow Shop), ii) 98% of NSTP

(after a privatisation exercise in Apr 2010), iii) six out-of-home (OOH) advertising

firms with a collective 44% market share; iv) Primeworks Studios Sdn Bhd, one

of Malaysia’s leading production studios; v) four radio stations (Fly FM, Hot FM,

One FM, and Kool FM); vi) various digital news and content producers, mostly

parked under Rev Asia Holdings Sdn Bhd and Media Prima Digital; and vii) a 51%-owned joint venture in home shopping platform, CJ Wow Shop.

UMNO currently has a 7.96% stake in Media Prima, through a Singapore-based investment holding company Altima Inc.

Figure 15: Media Prima’s stable of media assets


Star is Malaysia’s most-read English news outlet

Star is Malaysia’s largest English news producer, by print circulation and unique

views. Star’s current stable of businesses include print and digital news, event

management, and radio broadcasting. It launched its own over-the-top (OTT) video streaming service, dimsum, at end-FY16.

Media │ Malaysia


8

Figure 16: English news portals’ performances in Jun 2017-18 (PC and mobile)


Figure 17: Star Media's five-year financial summary


The Star newspaper was founded by former Penang Gazette Editor Choong Kok

Swee (KS Choong). The premiere issue was published on Choong’s birthday, 9

Sep 1971. The struggle to balance quality journalism and financial growth under

a tight budget resulted in him selling a 78% stake to the MCA in 1977, through the party’s investment holding company Huaren Holdings Sdn Bhd.

MCA owns 43% of Star

Under Huaren’s control, Star grew from a regional newspaper to a national daily.

It drew a profit only after more than 14 years of establishment. Star’s shares

were floated in a public offering in 1995. In 2010, MCA took direct control of Star after a transfer of shares by Huaren. The party now owns 43.1% of the company.

Star has been generous with dividends. The cumulative dividends disbursed

from 2000 to 2017 amounted to RM2.5bn. The group recently guided that the

payout frequency may be reduced from semi-annually to annually from FY18 onwards.


Revenue (RM m) 1,025.3 1,013.7 1,019.0 630.4 517.7

Operating EBITDA (RM m) 245.4 220.9 212.1 136.9 89.1

Net profit (RM m) 142.9 111.4 133.0 109.9 90.3

EPS (RM) 0.19 0.15 0.18 0.15 0.12

EPS growth (%) -31% -22% 19% -17% 13%

PER (x) 4.16 5.33 4.47 5.41 6.58

DPS (RM) 0.12 0.12 0.18 0.18 0.42

Dividend Yield % 14% 14% 20% 20% 14%

EV/EBITDA (x) 1.41 1.57 1.63 2.53 3.88

Net gearing (x) -23% -30% -30% -24% -43%

P/BV (x) 0.51 0.52 0.52 0.53 0.68

ROE (%) 12% 10% 12% 10% 9%

Issued common shares (m) 738.0 738.0 738.0 738.0 737.9

Shareholders fund 1,162.3 1,142.5 1,145.3 1,128.7 873.6

BVPS (RM) 1.58 1.55 1.55 1.53 1.18

https://www.thestar.com.my/news/nation/2016/09/09/the-night-a-star-was-born/

https://www.thestar.com.my/news/nation/2016/09/08/a-passion-to-be-the-best/

Media │ Malaysia


9

Utusan is the oldest Malay language daily

Utusan Melayu’s history dates back to 1939. Despite the Malay language being

the country’s official language, none of the other 146 periodicals published between 1906 and 1941 survived.

According to former journalist Tan Sri Johan Jaafar, citing The Origins of Malay

Nationalism by W.R. Roff, “Utusan Melayu was the first national daily owned,

financed and staffed solely by ‘Malays of the Archipelago’.” The newspaper gave

a voice to Malaya/Malaysia’s left-wing movement – until UMNO took control of the publication in 1961. UMNO has a 49.8% stake in Utusan.

Figure 18: Utusan Melayu's five-year financial summary


Utusan’s average total circulation (Utusan Malaysia and Mingguan Malaysia)

has fallen by 33.4% from 548,783 in 2012 to 365,647 in 2017. The group recorded accumulated losses of RM74.1m as at 30 Jun 2018.

On 20 Aug, it was relegated into Practice Note 17 (PN17) category, which

basically denotes that it is financially distressed. This came after Utusan

defaulted on loans from Bank Mualamat Malaysia Bhd and Maybank Islamic Bhd.

It has up to one year to submit a regularisation plan to Securities Commission

Malaysia (SC). If it fails to submit one, or if the regulator does not approve its plan, Utusan’s shares will be de-listed.

Possible scenarios of a mandatory general offer (GO)

Recap: buying 33-50% of a company’s shares triggers a GO

With the big blocks of shares that UMNO and MCA may have to dispose of,

questions may arise whether it is possible to see a mandatory GO for Utusan, Media Prima, and/or Star.

“The creeping threshold” in Rules on Take-Overs, Mergers and Compulsory

Acquisitions (the Code) dictates that a single shareholder and the persons acting

in concert (PAC) will trigger a mandatory general offer (GO) if their share

purchase of over 2% in a company within six months would raise their shareholdings to between 33% and 50%.

The decreed disposal may comply with National Policy

Should the buyers wish to be exempted from making a mandatory GO, they may

be able to apply for one under the Code’s Paragraph 4.14 (National Policy). The

paragraph states, “An offeror may apply for an exemption for an acquisition that has been approved by a relevant sector regulator based on national policy.”

We believe that if the en-bloc sales were to happen, they should constitute a

national policy; it would be made into law for the political parties to limit their shareholdings in media corporations.


Revenue (RM m) 342.4 291.2 248.9 227.4 245.0

Operating EBITDA (RM m) (0.2) (59.4) 13.8 (34.9) 9.3

Net profit (RM m) (16.2) (82.0) (21.0) (68.5) (7.5)

EPS (RM) (0.15) (0.74) (0.19) (0.62) (0.07)

EPS growth (%) 3% 406% -74% 226% -89%

PER (x) NA NA NA NA NA

DPS (RM) - - - - -

Dividend Yield % 0% 0% 0% 0% 0%

EV/EBITDA (x) (689.63) (2.37) 10.19 (4.03) 15.06

Net gearing (x) 57% 78% 92% 136% 145%

P/BV (x) 0.06 0.09 0.10 0.17 0.18

ROE (%) -6% -35% -11% -50% -7%

Issued common shares (m) 110.7 110.7 110.7 110.7 110.7

Shareholders fund 279.8 193.9 172.7 103.5 95.8

BVPS (RM) 2.53 1.75 1.56 0.93 0.87

https://kyoto-seas.org/pdf/15/4/150408.pdf

https://www.thestar.com.my/opinion/columnists/the-bowerbird-writes/2018/04/16/a-day-to-strengthen-journalistic-commitment-national-journalists-day-will-hopefully-contribute-to-a/

Media │ Malaysia


10

We think the government may also wish for the sale to be expedited as it is of

the view that having political parties as media owners is against the public’s interest.

If no exemption granted, only Utusan has high risk of facing a GO

Here, we explore the scenario for non-exemption to the buyers. In the case of

the political party shareholders being allowed to retain a 10% stake, the

minimum stake in Utusan that UMNO will have to dispose of is 39.8%, while

MCA has to sell at least 33.1% of Star shares. UMNO’s total stake of 7.96% in

Media Prima is nowhere near the 33-50% creeping threshold for triggering a mandatory GO.

Figure 19: Will UMNO's disposal of Utusan shares possibly trigger a GO?


If the potential buyer of Utusan shares wished to avoid triggering a mandatory GO, there would be at least another 6.9% stake that UMNO needs to sell.

Figure 20: Will MCA's disposal of Star Media shares possibly trigger a GO?


The potential buyer of Star’s block of shares would have little difficulty avoiding a

GO. At the minimum, MCA needs to dispose of another 0.2% stake in Star,

which is equivalent to 1.3m shares. The party can do a share placement. It may sell the 1.3m shares on open market.

Industry view: Why freedom of press is best for business

Are Malaysia’s media companies the only ones controlled by political parties?

While politics and media are heavily intertwined, many countries do not have

political parties owning media corporations. Some countries have even outlawed

parties from owning broadcasting companies, according to the ACE Electoral

Knowledge Network. A 2003 paper by Harvard University mentioned Malaysia,

Cote d’Ivoire, and Kenya as notable countries with political parties as shareholders in major media corporations.

Various sources point to India’s media industry as one that has a high

concentration of politically-linked owners. Emmanuel K. Ngwainmbi in his book

Citizenship, Democracies, and Media Engagement among Emerging Economies

and Marginalized Communities, stated that almost all of the 461 TV channels

launched between 2009 and 2015 were dedicated to news and current affairs.

The channel owners were political parties, individual politicians, or even

corporations who used the media to further their own agendas because “owning media organisations makes it easy to access political circles and government.”

How Malaysia rates for press freedom

Malaysia was ranked 145th out of 180 countries in the 2018 World Press

Freedom Index. It fell by one place yoy. The country edged out four other

Southeast Asian countries (i.e. Singapore, Brunei, Laos, and Vietnam), but it

was ranked lower than its regional neighbours with lower GDP/capita – namely

Indonesia (124th place), the Philippines (133), Myanmar (137), Thailand (140),

and Cambodia (142).

UMNO's stake 49.8%

Maximum stake possibly needed to disposed of 39.8%

Surplus stake from disposal to avoid triggering the 33-50% creeping threshold 6.9%

Amount of surplus shares to avoid triggering a GO (m) 7.6

MCA's stake 43.1%

Maximum stake possibly needed to disposed of 33.1%

Surplus stake from disposal to avoid triggering the 33-50% creeping threshold 0.2%

Amount of surplus shares to avoid triggering a GO (m) 1.3

https://aceproject.org/ace-en/topics/me/meb/meb03a/meb03a06

https://aceproject.org/ace-en/topics/me/meb/meb03a/meb03a06

https://scholar.harvard.edu/files/shleifer/files/media.pdf

http://hillpost.in/2013/08/top-7-indian-channels-that-are-owned-by-politicians/95166/

https://books.google.com.my/books?id=IHk2DwAAQBAJ&pg=PA118&dq=political+parties+own+media+business&hl=en&sa=X&ved=0ahUKEwjOgfbhyLXdAhVYZt4KHRa2ChQQ6AEIKTAA#v=onepage&q=political%20parties%20own%20media%20business&f=false

Media │ Malaysia


11

Figure 21: Rankings of ASEAN countries in World Press Freedom Index

SOURCES: REPORTERS WITHOUT BORDERS

The top 10 positions in the 2018 World Press Freedom Index were taken up by

the Organisation for Economic Co-operation and Development (OECD)

countries, with the highest ranks given to OECD members from the Nordic

region (e.g. Norway, Sweden, and the Netherlands). The only non-OECD

countries that made it to the top 10 were Jamaica (6th place) and Costa Rica

(10).

Figure 22: Top 10 countries in World Press Freedom Index 2018


Among the aforementioned countries where political parties have interests in

major media corporations, Malaysia ranked the lowest. All countries (Malaysia, Cote d’Ivoire, India, and Kenya) fell by one or two notches yoy.

Figure 23: Rankings of countries with notable political party ownerships in World

Press Freedom Index


According to Reporters Without Borders, the World Press Freedom Index is

determined by a pool of responses from journalism experts. The criteria

evaluated in the questionnaire are pluralism, media independence, media

environment and self-censorship, legislative framework, transparency, and the quality of the infrastructure that supports the production of news and information.

Printing Presses and Publications Act (PPPA) used to suppress journalistic freedom

The creator of the World Press Freedom Index, Reporters Without Borders, cited

the PPPA as an instrument used by the ruling government to silence the media.

Under the act, printing publications have to apply to the government every year to renew their operating licences.

When push came to shove, the BN administration had no qualms suspending

the operating licences of publications that published critical reports against the

then-government. The most notable recent case was the suspension of The

Edge Weekly’s and Financial Daily’s PPPA licences in Jul 2015, as their

Country 2017 2018 Yoy change

Indonesia 124 124 NA

Philippines 127 133 (6)

Myanmar 131 137 (6)

Thailand 142 140 2

Cambodia 132 142 (10)

Malaysia 144 145 (1)

Singapore 151 151 NA

Brunei 156 153 3

Laos 170 170 NA

Vietnam 175 175 NA

Rank Country Yoy change

1 Norway NA

2 Sweden NA

3 Netherlands 2

4 Finland (1)

5 Switzerland 2

6 Jamaica 2

7 Belgium 2

8 New Zealand 5

9 Denmark (5)

10 Costa Rica (4)

Country 2017 2018 Yoy change

Cote d'Ivoire 81 82 (1)

Kenya 95 96 (1)

India 136 138 (2)

Malaysia 144 145 (1)

http://www.theedgemarkets.com/article/kdn-suspends-edge-weekly-and-daily-3-months-over-1mdb-reporting

http://www.theedgemarkets.com/article/kdn-suspends-edge-weekly-and-daily-3-months-over-1mdb-reporting

Media │ Malaysia


12

reporting on the 1Malaysia Development Bhd (1MDB) scandal was found to be

“prejudicial or likely to be prejudicial to public order, security or likely to alarm

public opinion or is likely to be prejudicial to public and national interest". The BN

government had also blocked access to Sarawak Report’s website, and Medium which republished Sarawak Report’s articles.

A case of ‘what could have been’ for Malaysian media

Even though the decline in the consumption of traditional media was inevitable

for media industries all over the world, the question remains whether the decline

in the Malaysian incumbents’ profits and audiences could have been slowed down had they been accorded reporting freedom.

Figure 24: The Edge Weekly's average circulation has grown by

a CAGR of 6.5% from 2012 to 2017

Figure 25: At the same time, average circulations of New Straits

Times and The Star fell by 6-16% CAGRs

SOURCE: AUDIT BUREAU OF CIRCULATIONS MALAYSIA SOURCE: AUDIT BUREAU OF CIRCULATIONS MALAYSIA

Lending some credence to this theory is The Edge Weekly growing its total

circulation amidst a digital onslaught hammering the print industry. Between

2012 and 2017, the financial newspaper’s average circulation grew by a CAGR

of 6.5% to 30,276 copies per week. Coincidentally or not, the circulation

recorded its biggest yoy growth, at 13.2%, in 2015 – the year in which it was

suspended temporarily after ramping up its series of exposés on 1MDB. The

Star meanwhile slumped by a CAGR of 6.3% in the same period, while New Straits Times fell by a CAGR of 16%.

Figure 26: The Star's total circulation has not recorded a hoh growth since 1H16

SOURCE: AUDIT BUREAU OF CIRCULATIONS MALAYSIA

Once BN was finally toppled at May 2018’s GE14, Star said its average

circulation has rebounded by an average of c.15,000 copies/day, which may well

be the first time it has registered sequential growth since 1H16. Its news portal’s

Title:

Source:


22,112 22,502

24,516

27,749 28,423

30,276

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2012 2013 2014 2015 2016 2017

Yoy (%)(Copies/week)

Title:

Source:


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2012 2013 2014 2015 2016 2017

Copies/day

NST New Sunday Times The Star

Title:

Source:


289.4 289.6 291.1

286.4272.5

248.4

248.6

221.0

217.1

201.9

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

-

50

100

150

200

250

300

350

1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17

Hoh (%)'000

('000) Hoh (%)

Media │ Malaysia


13

unique visitors have also increased from 4m to as many as 9m currently. In our

view, sustainable growth in readership post-GE14 should be a better proposition for advertisers.

Figure 27: The Star website’s unique visitors ('000/day)


Outlook: what new shareholders could be looking for

Entrepreneurs may be willing to ride out the volatility

In our view, deep-pocketed entrepreneurs are more likely to take a long-term

view when investing in a business, and have the resources to expand the

business. Media corporations have formulated new business strategies to plug

the holes left by the declining traditional media’s profitability. Their earnings may

be on the downtrend now, but there are long-term positive prospects in the new

initiatives (i.e. home shopping and growing digital media). The likely suitors for

the media shares owned by political parties may also be attracted to the assets

in the company, or simply going for non-economic benefits. This section will

explore the possible value that an entrepreneur could see in owning a piece of a media corporation.

Media companies have mapped out growth/turnaround strategies

In 2017, Media Prima introduced the Odyssey Strategy, a 3-5 year blueprint to

increase the share of non-adex and digital adex in its earnings base. The group

finally managed to arrest the yoy decline in its 1H18 revenue for the first time

since 1H13 as the digital and commerce segments’ revenue growth can now

compensate for the declines in traditional business. Media Prima guided that its

CJ Wow home-shopping business, which made up 15.4% of group revenue in 1H18, may become profitable in 1H19 – if not sooner.

Title:

Source:


0

1,000

2,000

3,000

4,000

5,000

6,000

Jun 2

017

Jul 201

7

Aug 2

017

Sep 2

017

Oct 201

7

Nov

2017

Dec

2017

Jan 2

018

Feb

2018

Mar 2018

Apr

201

8

May

2018

Jun 2

018

('000)

The Star Online (LHS) StarBiz (RHS)

Media │ Malaysia


14

Figure 28: Media Prima’s traditional revenue in 1H18 vs 1H17 Figure 29: Media Prima’s Odyssey revenue in 1H18 vs 1H17

SOURCES: CIMB RESEARCH, COMPANY REPORTS SOURCES: CIMB RESEARCH, COMPANY REPORTS

Star meanwhile has assembled a team led by a Chief Technology Officer (CTO)

to better monetise consumer insights and data. In 3Q17, it launched the online-

only StarBiz Premium subscription service. The group also has continuously

introduced new content in its dimsum video streaming service. The investment

into digital seems to be bearing fruit: Star said in 1H18 alone, revenue from its

digital products grew by 42% yoy, while dimsum’s paid subscribers are nearing the 1m mark as it approaches its two-year anniversary in Nov 2018.

Consolidation and synergy purposes

The proposed law for political parties to limit their shareholdings in media

companies gives existing individual media owners the opportunity to restructure

their media assets, either by consolidating or cross-branding the enlarged brand portfolio. Operating efficiency can also be amplified.

The mainstream media still have a large audience base to tap; an enlarged

audience base will enhance a media corporation’s proposition to advertisers.

Media Prima did exactly that for its digital segment by acquiring Rev Asia Holdings.

Figure 30: Media Prima’s instant benefits from its purchase of Rev Asia Holdings in Aug 2017


520.7

477.8

450

460

470

480

490

500

510

520

530

1H17 1H18

RM m

Traditional business (adex, content and circulation)

80.3

145.3

0

20

40

60

80

100

120

140

160

1H17 1H18

RM m

Odyssey (digital adex and e-commerce)

Media │ Malaysia


15

But we believe an industry consolidation is overdue, more so with traditional

media’s adex continuously contracting. Malaysia has at least 30 newspapers in

four languages – and these are only newspapers audited by ABCM. The country

also has 13 FTA TV stations, with the capacity to expand to 80 channels once

the analogue switch-off (ASO) takes place – yet a pay TV service is already

available in 84.1% of households, according to the Malaysian Communications

and Multimedia Commission (MCMC). As for radio, there are at least 17

privately-owned stations, with the government’s Radio Televisyen Malaysia

(RTM) having multiple national and regional stations. All of these serve a

relatively small c.31m population. Moreover, there is a never-ending array of content on digital and social media.

Knowledge-transfer and resource-sharing are also key considerations. In the

aforementioned case of Media Prima, it leveraged on Rev Asia Holdings’

expertise in marketing digital assets to advertisers, thus improving the yields of

all of its digital properties’ advertising spaces. The group said NSTP’s digital revenue jumped by 66% yoy in 1H18.

There’s money in the (land) bank

The media incumbents have been cultivating land assets over the years, and

now they have communicated their intentions to unlock the value of these real estates. Star, Media Prima, and Utusan own a combined 5.2m sq ft of property.

Some of these land tracts are in strategic locations. For example, one of Star’s

printing plants, which will be decommissioned in Sep 2018, is sandwiched

between Penang International Airport and the highly coveted Bayan Lepas Free

Industrial Zone. The property, which has not been revalued since 2002, has a net book value of RM18.2m.

Utusan’s crown jewel is its headquarters on Jalan Chan Sow Lin, an area that is

less than 10 minutes’ drive to the Kuala Lumpur City Centre (KLCC). The

headquarters and the adjacent buildings owned by the group have a combined

land area of six acres, and a net book value of RM124.3m. This works out to RM1.12/share, or 8x its share price of 14 sen as at 21 Sep.

Figures 31-34 show the lists of properties owned by Star, Media Prima, and

Utusan as at 31 Dec 2017. We also calculated the hypothetical value of each of

the land tracts today, by assuming an average 5% annual value increment since the last time it was revalued.

Figure 31: List of Star's vacant land tracts in possession as at 31 Dec 2017


Net book Net book value NBV/share Last Est current market value

Vacant land tracts Location Size (sq ft) value (RM m) (RM/sq ft) (sen) revaluation (RM m)

Selangor

Industrial land near Star's printing plant Shah Alam 405,979.0 22.5 55.41 3.05 1997 62.7

Industrial land Shah Alam 108,900.0 4.4 40.22 0.59 2004 8.7

Industrial land Shah Alam 111,078.0 4.4 40.00 0.60 2004 8.8

Penang

Industrial land near Star's printing plant Bayan Lepas 77,543.1 12.0 154.16 1.62 1997 33.3

Perak

Commercial land Ipoh 17,464.8 1.4 78.79 0.19 2005 2.6

Pahang

Agriculture land Bentong 390,944.8 2.1 5.36 0.28 1999 3.7

Agriculture land Bentong 78,910.2 1.1 13.67 0.15 2000 1.8

Total 1,190,819.9 47.8 6.5 121.5

https://www.mcmc.gov.my/skmmgovmy/media/General/pdf/Infographic-2Q2018-CM.PDF

Media │ Malaysia


16

Figure 32: List of Star's properties with buildings as at 31 Dec 2017


Figure 33: List of Media Prima's top 10 properties as at 31 Dec 2017


Based on our assumption of average 5% annual increments, Star could

recognise an additional RM216m or RM0.29/share in gains on asset revaluation.

We estimate the vacant land tracts’ surplus since their last revaluation is about

RM73.7m or RM0.10/share. However, we believe the vacant land tracts should

Net book value NBV/share Last Est current market value

Buildings and units Location Size (sq ft) (RM m) (sen) revaluation (RM m)

Penang

Office block and creative & events hub Kapitan Keling 23,372 0.8 0.1 1983 4.6

Newsprint warehouse Bukit Mertajam 172,644 7.9 1.1 1995 24.4

Regional office and printing plant (ceasing Bayan Lepas 209,595 18.2 2.5 2002 39.7

operations in Sep)

Selangor

Menara Star headquarters Petaling Jaya 165,000 37.0 5.0 2001 84.7

Printing plant Shah Alam 205,117 30.5 4.1 2001 70.0

Klang Town Commercial Centre Klang 4,800 0.7 0.1 2007 1.2

(three-storey shop office)

Five-storey shop office & 1 lower ground Subang Jaya 10,080 2.3 0.3 2009 3.6

car park

Putrajaya

Neighbourhood Commercial Centre Presint 9 18,199 3.4 0.5 2004 6.7

(four-storey shop office)

Perak

Office building Ipoh 21,291 4.2 0.6 2011 5.9

Pahang

Single-storey detached house for staff retreat Cameron Highlands 60,387 1.2 0.2 2002 2.6

Sabah

First floor of an office block Kota Kinabalu 1,210 0.2 0.0 1999 0.4

Singapore

19th floor of 50-storey International Plaza Anson Road 2,357 2.1 0.3 2005 3.9

mixed development

Beijing, China

Top floor of a 42-storey building Chao Yang District 4,159 1.8 0.2 2004 3.5

London, UK

Two-storey semi-detached house Randolph Avenue 1,440 0.7 0.1 1995 2.3

Total 899,650.9 110.9 15.0 253.4

Built-up Land area Net book NBV/share Last

Property Location area (sq ft) (sq ft) value (RM m) (sen) revaluation

Regional printing plant* Shah Alam, Selangor 333,311 653,154 94.0 8.47 2017

Group headquarters* Bangsar, Kuala Lumpur 680,391 151,814 47.9 4.32 2017

Selangor

Warehouse Port Klang 139,368 251,552 12.1 1.09 2017

Broadcast studio Shah Alam 81,970 80,062 10.8 0.97 2017

Johor

Former regional printing plant Senai 160,801 358,063 19.4 1.74 2017

Penang

Regional printing plant Seberang Perai 143,876 244,261 15.0 1.35 2017

Office block George Town, 12,951 13,771 6.3 0.57 2017

Negri Sembilan

Training centre building Port Dickson 35,122 64,305 4.1 0.37 2017

Terengganu

Former regional printing plant Hulu Terengganu, 98,862 630,442 3.1 0.28 2017

London, UK Terengganu

Residential apartment Whitehall Court 865 NA 3.0 0.27 2017

Total 1,687,517 2,447,424 215.7 19.4

Total (ex-sold properties) 452,477 1,310,842 50.9 4.6

*in the midst of finalising sale-and-purchase (SPA) agreements

Media │ Malaysia


17

be worth more if Star develops them. During Star’s 2Q18 briefing, the group

hinted at its plan to explore property development. We are encouraged by Star’s

efforts to diversify its income stream but plans are still in preliminary stages. We

see the potential monetisation of properties and land bank assets as potential re-rating catalysts for the stock.

Figure 34: List of Utusan's properties


The intangible benefits

Despite eroding earnings and audience bases in the traditional segments, the

media still has a major influence in politics and society. With that, it can also be

used for self-serving purposes, be it for the advancement of the owner’s political

or business interests. While this situation is less ideal for the larger society, it has happened often in reality.

Journals and newspapers such as Columbia Journalism Review and The New

York Times have discussed the issue of western business tycoons venturing into

media as an “expensive hobby” or to exert editorial control. The examples cited

Land area Built-up area Net book NBV/share

Property Location (sq ft) (sq ft) value (RM m) (sen)

Kuala Lumpur

8-storey headquarters Jalan Chan Sow Lin 94,874.0 383,000.0 81.7 73.77

"The Trex" commercial premise Jalan Chan Sow Lin NA 60,673.0 38.9 35.13

Office building rented out Jalan Chan Sow Lin 63,855.0 49,368.0 1.5 1.32

Three-storey building rented out Jalan Chan Sow Lin 20,398.0 11,830.0 1.1 0.99

Factory building rented out Jalan Chan Sow Lin 38,761.0 23,361.0 1.0 0.88

Factory and office building rented out Jalan Chan Sow Lin 50,774.0 28,601.0 0.2 0.18

3.5-storey terrace factory for Utusan Cheras 13,552.0 12,015.0 2.1 1.94

Publications & Distributors Sdn Bhd

Putrajaya

Four-storey shophouse rented out Putrajaya NA 5,025.0 1.6 1.49

Selangor

Printing complex Bangi 683,278.0 197,651.0 60.6 54.75

Four-storey shophouse for rent Glenmarie NA 19,653.0 18.8 16.94

Commercial building under construction Sungai Buloh NA 27.6 11.2 10.16

Five-storey shophouse rented out Petaling Jaya 5,533.0 24,170.0 2.7 2.47

Four-storey shophouse rented out Petaling Jaya 1,539.0 5,830.0 0.4 0.37

Shophouse at Plaza Glomac, rented out Kelana Jaya 1,292.0 1,292.0 0.3 0.31

Kedah

Utusan's office Alor Setar 1,013.0 3,040.0 0.3 0.30

Utusan's office Alor Setar 1,013.0 3,040.0 0.3 0.30

Penang

Northern region printing plant Seberang Jaya 174,177.0 69,888.0 14.5 13.14

Utusan's office Georgetown 1,280.0 1,995.0 0.4 0.38

Two-storey shophouse rented out Georgetown 1,280.0 1,995.0 0.4 0.38

Perak

Utusan's office Ipoh 1,740.0 2,720.0 0.2 0.16

Two-storey shophouse rented out Sitiawan 2,288.0 3,980.0 0.4 0.39

Malacca

Utusan's office Taman Melaka Raya 1,400.0 4,160.0 0.1 0.09

Johor

Vacant factory building Johor Bahru 170,311.0 21,410.0 4.4 3.96

Utusan's office Johor Bahru 1,920.0 5,358.0 0.4 0.33

Two-storey shophouse rented out Batu Pahat 1,680.0 3,192.0 0.1 0.09

Pahang

Utusan's office Kuantan 2,000.0 4,900.0 0.1 0.12

Utusan's office Temerloh 1,600.0 2,480.0 0.1 0.08

Vacant land Kuantan 3,267.0 NA 0.1 0.08

Terengganu

East Coast region printing plant Kuala Terengganu 130,684.0 22,000.0 3.6 3.23

Utusan's office Kuala Terengganu 1,431.0 2,500.0 1.0 0.91

Sabah

Eight-storey office building for rental Kota Kinabalu NA 12,092.0 7.6 6.88

Jakarta, Indonesia

Office and residential apartment unit Jakarta Selatan NA 5,984.0 2.4 2.20

Total 1,470,940.0 993,230.6 258.8 233.7

https://archives.cjr.org/behind_the_news/euro_tycoon_media_ownership.php

https://www.nytimes.com/2012/04/09/business/media/the-return-of-the-newspaper-barons.html?_r=4&pagewanted=all&

https://www.nytimes.com/2012/04/09/business/media/the-return-of-the-newspaper-barons.html?_r=4&pagewanted=all&

Media │ Malaysia


18

included Ukraine’s piping tycoon Victor Pinchuk owning almost all of the

country’s TV stations, and hedge fund manager Donald Sussman, whose then-

wife was in the US Congress, buying the publisher of regional newspaper Portland Press Herald in 2013.

Who’s likely to be at the auction house?

“Tycoons in the media business” reportedly interested

In this section, we will look at the personalities in the media industry. An 8 Sep

report in StarBiz Week hinted that two tycoons “who are already in the media

business” had expressed interest in the media assets owned by UMNO,

especially Media Prima. While it may well be an existing media tycoon who ends

up buying these media assets, we are not discounting the possibility of seeing new faces in this industry or institution funds emerging as the shareholders.

Figure 35: How much the buyers would have to pay for the political parties' stakes, assuming the price is valued at 1x NAV


Syed Mokhtar has a major presence in the media industry

Tan Sri Syed Mokhtar Albukhary, the 12th richest Malaysian according to

Forbes’s 2018 list, is better known for his agricultural and industrial businesses. He also has an enviable presence in the media and publishing industry.

Figure 36: Tan Sri Syed Mokhtar Albukhary

SOURCE: NEW STRAITS TIMES

His name does not surface in any of the companies he owns, but Syed Mokhtar

reportedly owns stakes in two newspapers (Utusan and The Malaysian Reserve),

publishing and printing companies (Syarikat Percetakan Nasional Malaysia Bhd

and MPH Group Malaysia Sdn Bhd), and the concession for the infrastructure of Malaysia’s digital TV transmission (MyTV Broadcasting Sdn Bhd).

Stake owned by UMNO/MCA Latest audited NAV (RM m)

The value of the stake owned by

UMNO/MCA at 1x NAV (RM m)

Market value of the stake owned

by UMNO/MCA (RM m)

Star 43.1% 873.6 376.3 265.7

Media Prima 8.0% 766.7 61.0 41.5

Utusan 49.8% 95.8 47.7 7.7

https://www.thestar.com.my/business/business-news/2018/09/08/umnos-media-assets-dilemma/

Media │ Malaysia


19

Tong Kooi Ong: a man with the edge?

Datuk Tong Kooi Ong co-founded The Edge financial newspaper in 1993. Today,

he is the Executive Chairman of The Edge Media Group. Its stable of

publications comprises The Edge Weekly (Malaysia), Financial Daily, theedgemarkets.com, The Edge Singapore, and EdgeProp.my.

Figure 37: Datuk Tong Kooi Ong

SOURCE: THE EDGE MARKETS

Tong did not start his career in the media industry, nor did he build his fortune

from it. He was an equity research analyst before he ventured into

entrepreneurship. In 1986, he became one of Malaysia’s youngest heads of

research, at 27 years old, during his tenure at Arab-Malaysian Securities Bhd.

Tong later founded Phileo Allied Bhd bank in the 1990s. Eventually, he

diversified into property development, power generation, media, and digital technology.

Tong was the largest shareholder in Sunrise Bhd, the property developer behind

the elite Mont’ Kiara township, which merged with UEM Land Bhd in 2011. The

company is now known as UEM Sunrise Bhd. The sale of his c.24% stake in Sunrise in Jan 2011 was worth RM341.6m.

The Edge Media Group has carved a niche as a preeminent producer of

financial news but lacks a mainstream audience base. There were a few

attempts to fill this gap. In 2003, Tong and Tan Sri Vincent Tan Chee Yioun

agreed to merge The Edge and The Sun, which lasted through 2008 when Tan

took back The Sun’s ownership for “political considerations”. Tong later

established general news portal fz.com at end-2012, but the website was quickly

abandoned after The Edge Media Group purchased The Malaysian Insider in

Jun 2014. The portal eventually closed down in Mar 2015, citing financial constraints.

Media │ Malaysia


20

Siew Ka Wei owns Malay Mail

Dato’ Dr. Siew Ka Wei is the Executive Chairman and a 20.7% shareholder of

Ancom Bhd, an agricultural chemicals and herbicides producer. The company also houses Redberry Media Group, an out-of-home (OOH) advertising firm.

Figure 38: Dato’ Dr. Siew Ka Wei

SOURCE: THE MALAY MAIL

Separately, Siew also owns an effective c.47% stake in Malay Mail Sdn Bhd, a producer of print and digital news, according to a 2015 report by digitaledge Weekly. The company was bought over from NSTP in 2012. The Malay Mail and The Malay Mail Online were previously two independent operations, with the latter helmed by a team of journalists who defected from The Malaysian Insider in 2013. They have now been consolidated.

Vincent Tan founded The Sun

Consumer and gaming tycoon Tan Sri Vincent Tan Chee Yioun is Forbes’s 25th

richest Malaysian in 2018. His involvement in the media business is limited to

The Sun, Malaysia’s only free print newspaper. Mired in losses since its first

issue in 1993, Tan approached Tong and Ho Kay Tat (The Edge Media Group’s current Group Chief Executive Officer and Publisher) to turn around The Sun.

Figure 39: Tan Sri Vincent Tan Chee Yioun

SOURCE: THE STAR

http://www.theedgemarkets.com/article/siew-consolidating-media-business

http://www.theedgemarkets.com/article/siew-consolidating-media-business

Media │ Malaysia


21

Thus in 2003, Tan and Tong structured a merger of The Sun and The Edge via

Nexnews Bhd, where Tan held an associate stake of 26.2% of the listed

company. Ho was in charge of managing the merged entity. The merged entity

disintegrated in 2008, purportedly over The Edge’s critical editorial stance

ruffling the then-government’s feathers. Tan was later quoted by The Straits

Times saying, “We would prefer to be friends with everyone,” and proceeded to buy Tong’s c.36% stake in Nexnews.

Nexnews was eventually renamed Berjaya Media Bhd. In Jun 2017, Berjaya

Media became a PN17-status company, as a result of its shareholders’ equity

falling below 25% of its issued capital. The company has been granted an extension to 20 Dec 2018 to submit its regularisation plan.

Ananda Krishnan has Astro, a media powerhouse

Tatparanandam Ananda Krishnan is Forbes’s 3rd

Richest Malaysian in 2018. He first accumulated wealth from the oil and gas industry, and eventually diversified into gaming, telecommunications, and media. He founded pay TV service Astro in 1995, which is now parked under Astro Malaysia Holdings Bhd.

Figure 40: Tatparanandam Ananda Krishnan

SOURCE: REUTERS

Through various investment holding companies, Ananda has a 41% stake in Astro. In the 22 years since it first launched in Oct 1996, Astro has turned into a household brand, with 75% households subscribing to the legacy pay TV service and the prepaid alternative, NJOI.

While anything is possible, we see little synergistic value for Astro if Ananda emerges as the buyer of any of the media companies’ stakes that would have to be sold by the political parties.

What about a management buyout?

We can also see the possibility of Utusan, Star, or Media Prima’s incumbent

management teams launching an MBO to take over the shares held by the

respective companies’ political party owners, à la Realmild’s MBO of NSTP in

the 1990s. To do so, the management teams and/or their PACs may have to

cough up an estimated RM47.7m to RM376.3m for the minimum number of

shares required to be bought, assuming that the shares are valued at 1x latest audited BV (see the next section for the estimated valuation).

https://www.malaysia-today.net/2008/01/30/takeover-of-newspaper-not-political-says-berjaya-boss/

Media │ Malaysia


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Estimating the fair valuation

Looking at past government-decreed M&As

The proposed law for limiting political parties’ shareholding will not be the first

time the Malaysian government orders a sector-wide share-sale exercise. Thus, this gives us historical precedents to form our opinion on the valuation.

For the case studies, we looked at two government-decreed merger-and-

acquisition exercises: i) the 1999-2002 consolidation programme of the domestic

banking institutions into 10 anchor banks, initiated by Bank Negara Malaysia

(BNM); and ii) the ongoing federal government takeovers of state government-

owned or privately held water assets, as part of the requirements for the Water Services Industry Act 2006 (WASIA).

1x BV or NTA formed the valuation bedrock

For the bank consolidation exercise, BNM had set various valuation principles

for listed and non-listed targets. The valuation principle for the listed banks was

the weighted average market capitalisation over the past three months prior to

the first announcement of the merger exercise on 29 Jul 1999. The valuation

may also take into account other factors such as the takeover targets’ adjusted net tangible assets (NTA) and the quality of assets.

Figure 41: Bank Negara Malaysia's principles on valuation for the 1999-2002 banking sector consolidation

SOURCE: BANK NEGARA MALAYSIA

The federal government’s special purpose vehicle (SPV) for water-asset

acquisitions, Pengurusan Aset Air Bhd (PAAB; “the Custodian of Water Assets”),

first acquired Malacca state’s water assets. The valuation used was 1x BV,

which PAAB said would be the basis for its subsequent valuations. Adjustments could be accommodated to reach a “willing-buyer, willing-seller” agreement.

Figure 42: Valuations for state water assets acquired by Pengurusan Aset Air Bhd

(PAAB)

SOURCES: CIMB RESEARCH, COMPANY REPORTS, NEWS REPORTS

Target's listing status Recommended valuation principle

Unlisted, subsidiary of unlisted company Adjusted NTA, with potential earnings capacity to be taken into consideration

Listed Weighted average market capitalisation in 29 Apr-28 Jul 1999

Adjusted NTA

Asset quality

Subsidiary of listed company (Weighted average market capitalisation of listed parent x % of target's three-year earnings contribution to listed parent)

+ (% of adjusted NTA)

Valuation

Date State/Concession basis

Dec 2008 Syarikat Air Melaka Bhd (SAMB) 1x NAV

Jan 2009 Syarikat Air Negeri Sembilan Bhd (SANSB) Assets = liabilities

Mar 2009 Syarikat Air Johor Holdings Sdn Bhd 1x NAV

Aug 2010 Syarikat Air Perlis 1x NAV

Jun 2011 Penang Water Supply Corp (PBAPP) Assets = liabilities

May 2012 Perak Water Board (LAP) Assets = liabilities

Oct 2015 Puncak Niaga Sdn Bhd 14-25% discount to DCF

Oct 2015 Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) 65-70% discount to DCF

Jan 2016 Konsortium ABASS Sdn Bhd 8% discount rate to DCF

Sep 2016 Air Kelantan Sdn Bhd NA

Sep 2018 (Ongoing) Syarikat Bekalan Air Sungai Selangor Sdn Bhd (Splash) 0.72x NAV

http://www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=1367&lang=bm

Media │ Malaysia


23

In summary, the recurring themes that set the valuation principles of the past government-decreed takeover exercises were:

1. A 1x BV or NTA as the valuation’s foundation.

2. But adjustments can be made to fulfil the “willing-buyer, willing-seller” criterion.

Star and Media Prima’s 1-to-3-year mean P/BV at 1.1x

When looking at the media companies’ P/BV, the averages have been trading in

the c.1x region over the past one to three years. We looked at a three-year

mean for Media Prima and Utusan, as we believe that a longer time horizon of

say five or 10 years for instance would not fairly reflect their current earnings

profiles. For Star, the mean is shortened to one year, to reflect its mean P/BV after disposing of Cityneon Holdings Ltd.

Figure 43: Star Media Group's 1-year forward P/BV


Figure 44: Media Prima's 1-year forward P/BV


Both Media Prima and Star’s BV mean were at 1.1x, higher than the current 0.8-

0.9x that they are trading at. Utusan’s current P/BV of 0.2x meanwhile is at a

steeper discount to its 3-year mean of 0.5x. We believe that the bigger discount justifies the de-listing risk it carries after being relegated to PN17 status.

Title:

Source:


0.8x(27 Sep)

1.1x

1.25x

1.42x

0.91x

0.74x

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Sep 2

017

Oct 201

7

Nov

2017

Dec

2017

Jan 2

018

Feb

2018

Mar 2018

Apr

201

8

May

2018

Jun 2

018

Jul 201

8

Aug 2

018

(x)

P/BV Mean +1 s.d. +2 s.d. -1 s.d. -2 s.d.

Title:

Source:


0.8x(27 Sep)

1.1x

1.43x

1.74x

0.81x

0.49x

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Sep 2

015

Dec

2015

Mar 2016

Jun 2

016

Sep 2

016

Dec

2016

Mar 2017

Jun 2

017

Sep 2

017

Dec

2017

Mar 2018

Jun 2

018

Sep 2

018

(x)


Media │ Malaysia


24

Figure 45: Utusan Melayu's 1-year forward P/BV


Valuation and recommendation

Sector, ex-Astro, is trading below 1x P/BV

The media sector’s eroding earnings over the past few years have led to most of

the stocks trading below 1x P/BV. The exception, of course, is Astro, as its business model relies little on adex (c.13% of FY1/18 revenue).

While we acknowledge that the companies’ revenue-diversification plans may

grant them re-rating catalysts, we note that these new businesses need to go

through gestation periods before becoming reliable profit drivers. For Star

specifically, its plans to dabble into property development have not even been made concrete yet.

Media stocks’ hypothetical prices if a BV multiple was the valuation basis for upcoming M&As

Figure 46 below shows the latest audited BVs of Star and Utusan, as well as

their net tangible assets (NTA; NAV less intangible assets). We also put together

a series of hypothetical scenarios where the valuation of the upcoming share

sale-and-purchase agreements were based on BV multiples. This shows the

hypothetical share prices of these media companies, if the transactions are set at their latest audited BVs, or discounts that range between 10% and 50%.

Figure 46: Theoretical upsides or downsides if the acquisitions' valuations are the latest audited BV's multiple


Maintain Neutral pending concrete details on the new law

We welcome the news of a possible law to limit political parties’ ownership in

media companies to a 10% stake. The potential spate of M&As will be a short-

term re-rating catalyst for the sector. And in the long run, having little political

interference would allow the media corporations to make even more

commercially-driven decisions that would be a win-win for consumers and

shareholders. The recent change in government has resulted in some growth in

audience bases of the media corporations’ news segments, which gives some hope for better adex if this trend can be sustained.

Title:

Source:


0.2x(27 Sep)

0.5x

0.6x

0.71x

0.39x

0.28x

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Sep 2

015

Dec

2015

Mar 2016

Jun 2

016

Sep 2

016

Dec

2016

Mar 2017

Jun 2

017

Sep 2

017

Dec

2017

Mar 2018

Jun 2

018

Sep 2

018

(x)


Market

capitalisation

Latest

audited

Latest

audited Share price

as at 27 Sep BV NTA as at 27 Sep BV/share

(RM m) (RM m) (RM m) (RM) (RM) 1x 0.9x 0.8x 0.7x 0.6x 0.5x

Star 594.5 873.6 832.2 0.805 1.18 1.18 1.07 0.95 0.83 0.71 0.59

Potential upside/downside 47.1% 32.4% 17.7% 3.0% -11.8% -26.5%

Utusan Melayu 17.7 95.8 95.2 0.16 0.87 0.87 0.78 0.69 0.61 0.52 0.43

Potential upside/downside 440.6% 386.6% 332.5% 278.4% 224.4% 170.3%

Share price at BV multiple of (RM)

Media │ Malaysia


25

Potential upside risks are consumer sentiment staying robust post-SST

implementation and bigger dividend payouts, while downside risks are

deteriorating consumer sentiment and the non-traditional media businesses having to go through longer-than-expected gestation periods.

Risks

A commercially ‘unfriendly’ law

Our primary concern with this proposed law is that the political parties are

subjected to strict requirements like a limited timeframe of disposal, or given a

limited pool of potential buyers, that would preclude the sale from achieving a

“willing-buyer, willing-seller” type of transaction. But as the previous government-

decreed share sale-and-purchase transactions in the banking and water sectors

have shown, the government had ensured that the buyers and sellers would come to an agreement on the terms and valuations.

Utusan is a PN17 company

Utusan has up to 20 Aug 2019 to submit a regularisation plan to the SC in order

to remove the PN17 status. If it fails to do so, or if the SC rejects the plan, the

company’s shares will be removed from Bursa Malaysia’s Main Market board.

Subsequently, investors would be stuck with illiquid shares and with no market to trade Utusan shares.

Media │ Malaysia


26

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Media │ Malaysia


27

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Media │ Malaysia


28

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Recipients of this report are to contact CGS-CIMB Research Pte Ltd, 50 Raffles Place, #16-02 Singapore Land Tower, Singapore in respect of any matters arising from, or in connection with this report. CGS-CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CGS-CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents.

If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CGS-CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CGS-CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following : (a) Section 25 of the FAA (obligation to disclose product information); (b) Section 27 (duty not to make recommendation with respect to any investment product without having a reasonable basis where you may be reasonably expected to rely on the recommendation) of the FAA; (c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03]; (d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16]; (e) Section 36 (obligation on disclosure of interest in securities), and (f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which are relates to the above, to the extent permitted by applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institut ional investor acknowledges

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that a CGS-CIMBR is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CGS-CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CGS-CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA, the recipient will also not be able to file a civil claim against CGS-CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CGS-CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA.

CGS-CIMBR, its affiliates and related corporations, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CGS-CIMBR, its affiliates and its related corporations do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.

As of September 27, 2018, CGS-CIMBR does not have a proprietary position in the recommended securities in this report.

CGS-CIMBR does not make a market on the securities mentioned in the report.

South Korea: This report is issued and distributed in South Korea by CGS-CIMB Securities (Hong Kong) Limited, Korea Branch (“CGS-CIMB Korea”) which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”).

Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities.

CGS-CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services.

Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.

Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research).

Thailand: This report is issued and distributed by CGS-CIMB Securities (Thailand) Co. Ltd. (“CGS-CIMB Thailand”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CGS-CIMB Thailand has no obligation to update its opinion or the information in this research report.

CGS-CIMB Thailand may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.

AAV, ADVANC, AMATA, AOT, AP, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEAUTY, BEM, BGRIM, BJC, BH, BLA, BLAND, BPP, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EA, EGCO, EPG, ERW, ESSO, GGC, GFPT, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, INTUCH, IRPC, ITD, IVL, KBANK, KCE, KKP, KTB, KTC, LH, LPN, MAJOR, MEGA, MINT, MTLS, ORI, PRM, PSH, PSL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, RS, SAWAD, SCB, SCC, SGP, SIRI, SPALI, SPRC, STA, STEC, SUPER, TASCO, TCAP, THAI, THANI, TISCO, TKN, TMB, TOA, TOP, TPIPL, TPIPP, TRUE, TTW, TU, TVO, UV, WHA, WHAUP, WORK.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 – 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom and European Economic Area (EEA): In the United Kingdom and European Economic Area, this material is also being distributed by CGS-CIMB Securities (UK) Limited (“CGS-CIMB UK”). CGS-CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. The material distributed by CGS-CIMB UK has been prepared in accordance with CGS-CIMB’s policies for managing conflicts of interest arising as a result of publication and distribution of this material. This material is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CGS-CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies,

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unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jur isdiction, material(all such persons together being referred to as “relevant persons”). This material is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this material relates is available only to relevant persons and will be engaged in only with relevant persons.

Where this material is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “research” (cannot remove research from here under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent material will not have been prepared in accordance with legal requirements designed to promote the independence of research (cannot remove research from here) and will not subject to any prohibition on dealing ahead of the dissemination of research. Any such non-independent material must be considered as a marketing communication.

United States: This research report is distributed in the United States of America by CGS-CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CGS-CIMB Research Pte Ltd, PT CGS-CIMB Sekuritas Indonesia, CGS-CIMB Securities (Thailand) Co. Ltd, CGS-CIMB Securities (Hong Kong) Limited, CGS-CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CGS-CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CGS-CIMB Securities (USA) Inc.

CGS-CIMB Securities (USA) Inc. does not make a market on other securities mentioned in the report.

CGS-CIMB Securities (USA) Inc. has not managed or co-managed a public offering of any of the securities mentioned in the past 12 months.

CGS-CIMB Securities (USA) Inc. has not received compensation for investment banking services from any of the company mentioned in the past 12 months.

CGS-CIMB Securities (USA) Inc. neither expects to receive nor intends to seek compensation for investment banking services from any of the company mentioned within the next 3 months.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2017, Anti-Corruption 2017

AAV – Very Good, n/a, ADVANC – Excellent, Certified, AEONTS – Good, n/a, AMATA – Very Good, n/a, ANAN – Excellent, n/a, AOT – Excellent, Declared, AP – Excellent, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Declared, BCP - Excellent, Certified, BCPG – Very Good, n/a, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, , BGRIM – not available, n/a, BH - Good, n/a, BJC – Very Good, Declared, BJCHI – Very Good, Declared, BLA – Very Good, Certified, BPP – Good, n/a, BR - Good, Declared, BTS - Excellent, Certified, CBG – Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, GFPT - Excellent, Declared, GGC – not available, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Excellent, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Certified, ICHI – Excellent, n/a, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Very Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, n/a, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Very Good, Declared, MALEE – Very Good, n/a, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Excellent, Declared, PLAT – Very Good, Certified, PSH – Excellent, Certified, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Very Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI – Very Good, Declared, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, n/a, TCAP – Excellent, Certified, THAI – Very Good, n/a, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Excellent, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Good, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Excellent, Declared, TTW – Very Good, n/a, TU – Excellent, Declared, TVO – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a,

Rating Distribution (%) Inv estment Banking clients (%)

Add 62.3% 4.5%

Hold 26.2% 2.5%

Reduce 9.3% 0.8%

Distribution of stock ratings and inv estment banking clients for quarter ended on 30 June 2018

1203 companies under cov erage for quarter ended on 30 June 2018

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WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into:

- Companies that have declared their intention to join CAC, and

- Companies certified by CAC

Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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